New market mentality

Top 100 (Terracare Associates | Littleton, Colorado)

New market mentality

Two years after acquiring VMC, Terracare’s Dean Murphy reflects on the move and gives an update.

Kate Spirgen

Terracare Associates is growing strong. Two years ago, the $48-million company moved into one of the fastest growing markets in the country with the acquisition of VMC Landscape in Dallas. And it has no plans to stop.

Terracare President Dean Murphy says VMC was the perfect fit for an acquisition. The strong economy in the Dallas-Forth Worth area coupled with the sheer size of the population made it attractive to the growing company.

“When you think about it, diversification in different geographic areas is an advantage in many cases. So we’re sure we’re taking advantage of that,” he says.

Terracare now employs more than 650 people after acquiring VMC Landscape.

Photo courtesy of Terracare

Terracare now has branches in California, Colorado, Utah and Texas, and Murphy says there are a few more deals in the works.

Deciding how to grow.

Terracare is looking to grow both organically and through acquisitions, Murphy says. Starting from scratch is more challenging since companies need to make sure there’s enough work in an area to support a branch when it first starts out.

“It takes a lot of time, so if you can find somebody that’s a good fit, a good work mix, has a good margin, a good team – then it makes sense in buying that rather than spending all the time and money and waiting to grow the organic side of that,” Murphy says.

That’s not to say that acquisitions aren’t time consuming, but VMC made sense for Terracare, Murphy says. “The challenge with acquisitions is the vast majority are not good fits for one reason or another,” he says. “You have to do a lot of vetting to find one that makes sense with the business model and the culture, and this one did.”

“You have to do a lot of vetting to find one that makes sense with the business model and the culture, and this one did.” Dean Murphy, president, Terracare

There are other options, however, if you’re looking to move into a new market. Strategic buyers who have a strong footing in the industry will sometimes purchase an average company knowing that they’ll have to invest money to fix it.

Ceibass Venture Partners CEO Tom Fochtman, who handles mergers and acquisitions for green industry businesses, says that sometimes you can identify an average company with a typical yard in a good location and purchase at a discount – if the right team is in place.

Moving forward.

Terracare and VMC had a comparable work mix, and since VMC was almost entirely a maintenance company, there was no construction or other extra work connected to its maintenance contracts. Terracare now employs more than 650 people, including most of VMC’s 160 employees, which made the transition easier.

Before you buy

Ceibass Venture Partnership CEO and enterprise value specialist Tom Fochtman says the two things you want to look for when considering an acquisition are the strength of management and the capital expenditures you’ll have to invest in a company. “Are there good account managers and are they going to stay? Because if they’re not going to stay, typically the client may not stay,” he says.

Look at things like the quality and age of the fleet, the mileage, the hours on the mowers and the like, he says.

Photo courtesy of Terracare

Fochtman says that sometimes, if an owner knows he or she is going to sell soon, they’ll stop investing in equipment so it’s important to take a hard look at the data.

Look at how many brands of vehicles are in the yard, he says. More than one or two can be a red flag since your mechanics will have to be certified to care for all brands you use and your shop will have to be stocked with parts for each brand.

“It’s just easier and simpler, and you can cut a better deal with the manufacturer or the distributor if you’re buying a little more in bulk than buying five different kinds,” he says.

If you’re buying, the quality of accounting can be a make-or-break factor. “The quality of the due diligence and how that flows really can greatly determine if the transaction is going to close or not,” Fochtman says. “At a certain point, a buyer gets scared and backs off.”

A company that’s well prepared can close a deal in as little as three to six months, but Fochtman says it typically takes one to three years.

“You’re going to do the level of due diligence, authenticate the accounting, go through all of the assets, the equipment, property leases, equipment leases, all of the legal,” he says. “You have to look at all of the contracts. Are they assignable? Do they have a change of control?”

The buying process can become extremely time-consuming, so it’s good to have someone in the driver’s seat. “It’s emotional,” he says. “The seller, this is maybe the biggest financial transaction of their life.”

“The thing you worry about is how are customers going to react and all that stuff there, but as long as it’s the same guys doing the work, they’re fine,” Murphy says.

And since Terracare bought VMC as a freestanding company, starting the transition to the Terracare name was a joint decision between the two businesses. Murphy says that while there was no hurry to make the switch, “We do get some more leverage with the Terracare brand because of the size of it.”

Murphy says the transition was “uneventful” and that the company didn’t lose many customers.

He visited with larger customers himself to explain the change, had lunch meetings with mid-level clients and sent letter to smaller customers, sometimes following up with phone calls.

And Terracare learned a lot in the process. “Just because we’re the acquirer doesn’t mean that we have it all figured out,” Murphy says. “We’ll learn from each other so we want to acquire companies that are thinking about getting better every day. That’s our company culture – to try to improve all the time. There’s never an end to that.”